Feds Crack Down on Alaska Mining Co. in Clean Water Act Indictment

11/26/2014 03:15 pm ET Updated Jan 26, 2015

In a first for extraction-friendly Alaska, the Department of Justice last week announced an indictment against mining company XS Platinum, Inc. (XSP), and five of its officers and employees. The XSP executives stand accused of five felony counts centered on a conspiracy to knowingly dump mine waste into Southwest Alaska's Salmon River, a violation of the Clean Water Act. Further, according to the indictment, they deliberately misled regulators and submitted false statements to hide the pollution that they knew was occurring. The indictment is also noteworthy because XSP marketed itself as a "sustainable" mine that would get its platinum from mining waste rather than fresh excavation, and, as such, signed a contract with Tiffany & Co, which has positioned itself as a leader in responsible mining by signing on to a "No Dirty Gold" campaign directed at another Alaska mine.

"This is the first criminal indictment of a mining company for federal Clean Water Act charges in Alaska," said Kevin Feldis, First Assistant United States Attorney for Alaska. "This is part of our ongoing commitment to aggressively enforcing environmental law in Alaska."

The 28-page indictment centers on alleged criminal activity that occurred primarily in 2010 and 2011 on public lands around remote Goodnews Bay, where XSP's Platinum Creek Mine operated from 2008 to 2012. It's the culmination of a cooperative investigation involving a number of federal and state agencies and led by the EPA's Criminal Investigation Division and the BLM's Office of Law Enforcement and Security. They began building the case in 2011, shortly after XSP was initially cited for violations by the Alaska Department of Environmental Control.

The indictment names the company's top three officers, Chairman and CEO Bruce Butcher, 59, and Director and Executive VP Mark Balfour, 62, both Australian, and both Australian corporate attorneys; and James Slade, 57, a Canadian mining executive who served as Chief Operating Officer. In addition, Robert Pate, 62, an American geologist who was the mine's general manager and James Staeheli, 43, an American and a manager at the mine, were also indicted. All five of the men were charged with violating the permit and conspiring to cover up the violations, and all but Staeheli also face the charge of submitting a false statement.

XSP's holdings consisted of nearly 200 mining claims spread across more than 4,000 acres, mostly clustered around the Salmon River just upstream from where it flows through the Togiak National Wildlife Refuge and empties into the Pacific in Kuskowim Bay. The Salmon, like other rivers in the area, is an essential spawning habitat for all five species of Pacific salmon. The vast majority of the mining claims are on land managed by the BLM, while a small number of undeveloped claims lie within the Togiak Refuge.

XSP's plan was to reprocess the scrapheaps left over from the Goodnews Bay Mining Company's platinum mine (1937-1979) and extract residual platinum from the 45 million tons of tailings--mine waste--left behind over the decades it had been in operation. The company said it would do this all on a "zero-discharge" basis, filtering and reusing the massive amounts of wastewater created by the reprocessing, and thereby protecting the surrounding natural resources.

The idea of recycling old mine waste is recent and seems progressive, and that perception led to one of the mine's only bright spots during XSP's ownership. In October 2010, XSP completed a purchase agreement with Tiffany & Co, obligating the jeweler to buy a minimum of 5,000 ounces from the Platinum Creek Mine during 2011. At that time, Tiffany had signed on to the "No Dirty Gold" campaign to oppose the Pebble Mine in Bristol Bay, Alaska, and committed itself to broad sustainability initiatives and certification by groups like the Responsible Jewelry Council.

"As part of Tiffany's responsible mining initiative," said company spokesman Mark L. Aaron, "we were hopeful that their plan to re-mine tailings waste that was the legacy of prior mining operations could ultimately improve the water quality of the Salmon River. To support that plan, we purchased a de minimis amount of platinum from them in 2011, and later that year, we ceased purchasing." Aaron said that the 5,000 ounces stipulated by the contract represented a tiny fraction of Tiffany's overall platinum supply for that year, and that ultimately the company bought even less from XSP. (A 2012 investor report by XSP's parent company, Alluvia Mining, indicates that the total 2011 sale to Tiffany & Co. was just 1,200 ounces of platinum.) He declined to elaborate on why Tiffany terminated its relationship with XSP, but the break likely had something to do with XSP's failure to live up to its promise to operate a zero-discharge mine, which was first noted in an August 2011 violation issued by the Alaska Department of Environmental Control.

Various emails and memos among the five XSP managers, cited in the indictment, suggest that the company knew from the start of operations that it had no hope of living up to the zero-discharge standards of its permits. Among other things, the indictment alleges that XSP failed to install a "clarifier," a piece of equipment essential to filtering mining wastewater, despite telling the BLM that they would do so. According to the indictment, in Butcher's estimation, delivered in a 2011 email to defendants Slade and Balfour, the clarifier "would be nice to have", but "should be shelved."

Other details in the indictment confirm this cavalier attitude towards pollution. In one email, Slade referred to the waste discharge as "our 'Inconvenient Truth.'" In another, Pate is alleged to have ordered employees to dig an illegal drainage canal from a tailings pond into nearby Squirrel Creek.

Among the "overt acts" of conspiracy outlined in the indictment is an email allegedly sent from Butcher to Slade, Balfour, and Pate. "I would prefer that we not be engaging the regulators at this stage on our so-called 'zero-discharge' plant," he wrote, "as all that will do is immediately raise expectations to the point that that will become today's standard. A standard that we cannot presently meet. A standard that we may never meet. A standard which if imposed will have serious implications for the project." In total, the indictment charges, XSP produced 3,800 ounces of platinum "as a result of the Conspiracy" and sold it for $3.2 million.

The first violation notice--a National Fish and Wildlife Service biologist's observation of mining waste visible in the Salmon River, August 2011--seems to have been the beginning of the end for XSP. Though the corporation still exists (it's registered in Delaware), it no longer has any platinum to mine. In 2012, after XSP defaulted on the terms of its purchase agreement, previous owner Hanson Industries moved to foreclose. Its parent company Alluvia made at least one payment of $1 million to forestall the foreclosure, but never came close to paying back the more than $56 million it owed, and in December 2012, Hanson Industries took back control of the mine. (Alluvia, which was registered offshore in the Channel Islands, seems to have dissolved entirely in 2013, despite, according to the indictment, $34 million in capitalization from over 100 primarily European and Australian investors.)

Cabot Christianson, an Anchorage attorney representing Hanson Industries, characterized his client's relationship with XSP as "an adversarial relationship, as evidenced by the foreclosure." There has been no mining on the site since XSP ceased operations, but Hanson believes it is still viable. "My client is seeking to market the property," Christianson said. "The property itself does not have environmental problems of the type that would interfere with a sale. Obviously, any new owner would have to get their own permits to operate the mine, but XS Platinum's bad acts did not affect the physical condition of the property, fortunately."

Reached by phone at his office on the outskirts of Calgary, James Slade, XSP's former Chief Operating Officer and current CEO of AuVert, a mining technology company he founded that was affiliated with both XSP and Alluvia, indicated that he had only learned of the indictment on Wednesday. He had no comment except to say that his attorney would be issuing a statement this week.

The arraignment is scheduled for January 21, 2015.